The key question is whether today's news is a one-off, or whether it signals the start of a wider collapse that could see large parts of the rail network fall by default into the government's hands. Lord Adonis, the new transport minister, insists the system is strong enough to cope. But many in the industry fear the recession is making the complex web of contracts that underpins the rail network unsustainable.

Under the franchising system, the state outsources the operation of 19 rail routes across the UK to private companies. They agree to run a set number of trains, according to a pre-determined timetable, under contracts that typically last up to ten years.

It is supposed to be a good deal for both sides. Train operators generate a profit margin of around 3.5% and the state is spared the costly hassle of running the services. Even with that profit margin, the logic is that train operators will compete to run contracts as efficiently as possible and will do a cheaper job than any state-run service. Indeed, a small number of routes are deemed so lucrative to the private sector that operators must also guarantee the government a share of the profits. The biggest of those contracts was east coast, which offered the government £1.4bn over seven-and-a-half years for the right to run trains on the London-to-Edinburgh route.

Even more gallingly for trade union and backbenchers, the majority of contracts receive a net taxpayer subsidy to meet track access charges levied by Network Rail, the owner of Britain's tracks, signalling and stations. For instance, Virgin Trains will receive a subsidy of £1.4bn until 2012 in order to help pay off the £9bn west coast mainline upgrade.

This morning National Express ruptured that presumed compact between private and public sector – let us make money out of running the service and we'll shelter the taxpayer from financial risk – by announcing that it will hand back the keys. Furthermore, it said it was determined to hang on to its less onerous rail contracts, c2c and National Express East Anglia. Lord Adonis, the transport secretary, is adamant that National Express must exit the rail business altogether under cross-default guidelines.

However, the group appears to be saying that it can hand back the dodgy contracts and keep the good ones, leaving it up to the government to make good the shortfall in its rail budget, either by re-tendering the route for the same astronomic sum or plugging the financial hole with taxpayers' money. The loss to National Express is a performance bond of £32m, because it can promise payments worth £1.4bn with the insurance policy that it does not have to guarantee them. Even in the pre-crunch era, this would have raised hackles.

The National Express chairman, John Devaney, is adamant that privatisation has given passengers "a better rail system". He added: "You are not going to run it better with civil servants. It's a question of whether you can run it for less." National Express has now given the government an opportunity to prove that the public sector could indeed run it for less. The Liberal Democrats have urged the government to run east coast as a "public interest" franchise with passenger-oriented targets. Under that scenario, east coast could be used as a benchmark to measure private operators' performance and judge whether taxpayers are really getting a good deal from the franchises.

Now is the time to ask serious questions of the franchising policy, because it will account for three-quarters of the rail network's funding by 2014, underpinned by contracts such as the east coast that are collapsing at the first sign of economic crisis. Other contracts could become vulnerable, or require increasing levels of government support, as the recession continues.

Stephen Glaister, professor of transport and infrastructure at Imperial College London, is a long-standing critic of the way government procures public transport services. Pointing to the collapse of London Underground contractor Metronet, the biggest player in a £30bn PPP to upgrade the tube, he claims that ministers are unable to transfer risk from the public sector to the private:

"East coast confirms what has been apparent for a long time, that the government does not transfer risk to the private sector. The taxpayer pays for the private sector to bear commercial risk but ends up bearing the risk itself."